Affordable Access

Labor Markets and Kaleidoscopic Comparative Advantage



This paper addresses the labor market implications of an increase in openness and foreign competition. It develops a model where industry-specific productivity shocks create uncertainty, producing an environment of kaleidoscopic comparative advantage (Bhagwati, 1998). The key assumption is that risk markets are imperfect, as wage-contracts are subject to uninsurable bankruptcy risk. In this context, the paper analyzes the consequences for wage levels, wage volatility, job-instability and income distribution, of the openness of previously non-traded industries to the forces of international trade and foreign competition.

There are no comments yet on this publication. Be the first to share your thoughts.